Business Banking Is Broken

The problem with small-medium sized business loans

Business banking is broken.

I know that’s not news, but especially here in the UK it’s never been worse.

Of course the financial sector and banking in general is a topic that could fill hundreds of posts, but in this one I’m going to focus on how business loans work.

The majority (not all) but 95%+ of banks do not use any common sense when it comes to loan requests.

This is actually a conversation I had today, I’ll paraphrase to keep it short.

Introduction/pre-approved (not sure how) for a loan that I applied to. Around £200,000 to buy another business.

So some minion in a call centre running through a checklist of questions, already I knew this wasn’t going to go anywhere, but I didn’t think it would be as bad as it ended up.

Even though all the info was sent in the application form online, I was still asked the usual business info, followed by some affordability stuff (company turnover, staff, etc).

Then minion proceeded to ask if I had a property with a paid-off value higher than £400k… So essentially a house worth 400k+ fully paid off, or £400k in property asset value.

The answer is no.

Then asks if anyone with this would be a benefactor.

The answer as I did not want to continue this, was no, and then that was it, hung up.

Now, I understand it’s the process fault, not the minion, but what’s the point of going through the whole company questions, if your strategy is lend to people who will always have property asset value to pay it off? - Just led with this to save us both massive amounts of time.

But what’s worse is they didn’t ask any other questions.

They didn’t ask how much cash the company actually has in cash and liquid assets (BTC/invoices etc). Which is about 75% of the actual value of the loan I was looking for, making it very low risk for them.

Or on the personal side if there’s any other income, which there is, a couple of other companies and payments every quarter from selling a company in 2023…

All incredibly important info that just isn’t on a checklist or filters within an online application form.

Why on earth would anyone go and get a business loan backed by a property at 10-11% when they can get a re-mortgage at 5-6% for the same amount?

Any amounts over 25,000 have just become painful to deal with normal lenders, they do not use common sense in the approaches.

Buying a business for £200,000 that has cash flows of £6,000 a month.

The loan repayments on a loan of £200,000 would be 2/3rds of that amount over a 5 year period, even with a high interest.

It’s all so broken.

It’s no surprise that people are becoming more and more sceptical of the whole industry and its predatory nature.